NAVIGATION:

"The Sunny Side of the Street"

TUESDAY NIGHT--12/03/2002:

Figure 1 - Daily Dow Well, it wasn't much of an up day, was it?  In fact, it's a good thing we are nimble, because the email I sent out at 7:26am this morning alerted all subscribers that my model went short, but that I was going to wait for confirmation of a dip below 27.20 before taking the trade.  It did dip below, at about 7:40am, and I got short.

symbol prev close upper Attractor lower Attractor INDU 8736.82 9500 8450 QQQ 27.05 33.23 20.60 SPz02 923.50 963 875

The QQQs then proceeded to chop around and around the 27.20 number for the rest of the day.  I expected the market to drop to 26.90, where the Attractor lies, but it only made it as low as 26.93.  At that level, I exited my short for a little profit, as it was showing signs of not going lower, but in fact going higher.  Which it did.

How did I know that?  I was watching the Sunny_Bands, and price was pulling back away from the lower band.  When price pushes down on the band I can expect it to go lower, but when it pulls back up off the band it looks like a turnaround.  So, that was my clue.  Then I said, in another email, that if the price of the QQQs again showed weakness and went lower that I would again go short.

Sunny_Bands moved sideways for about 9 bars, indicating flat, dull, sideways action in the market, but RSI started to climb.  That made me wonder if we might be looking for a long trade.  But, price on the QQQ never went up above the middle Sunny_Bands.

In the next email I said that I would go short again if price broke the lower band going down.  Just minutes before the close price quickly popped under the bands and I issued an alert that I was going short.  I wanted to be short overnight  I did this because I like to be in the same position my model is in for the most part, especially when it seems likely that the morning gap is where a lot of the profit comes from.

This kind of trading is what I refer to when I say to "be nimble."  You've can't get married to a position.  Even though I thought yesterday that today "should" be an up day, as soon as I got the short signal I jumped, without question, opinion or emotion.

I have been watching after-hours trading and building up profits in the short trade, so it seems likely that tomorrow morning will show some downside activity.

Let's step back for a minute and look at the Weekly chart of the QQQs. 

Figure 2: QQQ Weekly

If you have taken one of my seminars, or have read any of my books, you will remember that I start all investigations with the question "What is true?"  Ok, so what is true of the chart in Figure 2?  The first obvious truism is that the Dynamic Moving Average (DMA) has been in a short signal since April of 2000.  The second thing I see is that the DMA is slowly moving closer and closer together, and is just about to give a long signal.  The third observation is that RSI has stayed well under 65 since April of 2000.  It continues to float around in bear territory.

Figure 3: QQQ Weekly showing Conjunctions

Next, I decided to draw a trendline over the tops and I see two true things from that exercise.  One: the trendline that begins with the top in April 2000 conjuncts with the second trendline that starts with the top in May 2001.  I have drawn a yellow circle around the conjunction.  Notice also that the Attractor drawn off the Sept 2001 lows is in that same conjunction.  Conjunctions such as these normally are powerful turning points.  Two:  Prices are right now bumping up against the second trendline, which is acting as resistance.

Now, if you will go back to Figure 1, of the Dow, and click to enlarge it you will see that I have drawn some more yellow circles showing conjunction points on the Dow.  Again we are bumping up against resistance.  

To me these truisms say that we are at an important determining point in the markets.  Either we push out above these points and fly on upward, or we give up and fall down.  The next few days to a week are very important keys to our knowing what is likely to come for months ahead.

Average True Range on weekly, daily and intraday charts is at all time lows.  That means we are in congestion patterns and everyone is afraid to step up to the plate.

Figure 4: INDU monthly showing H&S and RSI trendline

Looking at Figure 4 I see something else that I think is important.  Notice first that I have scaled the chart to semi-log scaling so that we are dealing with non-inflated dollars, and keeping the moves scaled to "today's dollar."  Next at the right top edge of the chart you can see the Head and Shoulders pattern in the making.  Will it go even lower to the measured move?  Or, will it spring back from these levels and make another run for the 11,500 area?  Average True Range on this monthly chart is pretty high, while on the other charts (daily, weekly and intraday) it was very low.

The other obvious thing I see in Figure 4 is the downsloping trendline on RSI.  We are right now in position to break through that resistance, or give up and move down in failure.

The dooms-sayers are looking at all these same indicators and telling you the world is coming to an end.  Nothing sells better than fear, unless it's greed.  

So, after that long diatribe, what am I saying?  Is it going to go up or go down?  Ultimately, I believe we will break through all this overhead resistance and move up a little bit.  Then we will probably turn around and retest the former resistance, which will then be support.  (I call them Attractors.)  But, I think the next few weeks are pivotal, crucial times where bad world events or bad news could foil the little bit of strength and send us reeling on down.  So, now, more that ever, stay nimble and ready to turn on a dime.  

I am trying to take 1-2% out of the markets each day and let the little piles add up over the long term.  I am not looking for any homeruns, just singles and doubles.  I think that playing safely is the only way at the moment.

I am positioned short overnight, and will just keep following my model.  If it turns on a dime tomorrow and goes long, so will I.  And I'll let you know, as always.

Thanks for subscribing.  I hope you are enjoying the Technical Analysis discussions.

Weekly Stock Picks for the week beginning 12/01/2002:

(Last week's picks made a profit of $790.  Click Here to view the picks for last week, in the Archives.)

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